Dive Brief:
- Construction input prices jumped 2.2% month over month in September and 11.2% year over year, the largest annual increase in nearly four years, according to an Associated Builders and Contractors analysis of federal Producer Price Index data released Thursday.
- Higher fuel costs caused by the conflict in Iran, coupled with tariff impacts on key materials, drove a substantial portion of the increase during the month, according to the ABC analysis, which focuses on the prices for physical commodities used in construction.
- Due to lingering escalations in materials prices, more than one in four contractors now expect profit margins to contract over the next six months, said Anirban Basu, ABC chief economist.
Dive Insight:
Construction firms are absorbing most of the cost increases amid the soft demand for projects outside of the data center boom, according to analysis by the Associated General Contractors of America.
The largest price increases affected petroleum products, according to the AGC analysis, which, in addition to goods prices, includes costs for construction services. Metals prices have also jumped sharply since President Donald Trump introduced tariffs last year.
In addition to pricing, contractors are encountering extreme challenges around material availability, with suppliers’ order books full through spring of 2027, per AGC. Some firms have been told they will only receive a small fraction of the steel beams they had ordered and that alternative suppliers are refusing orders from new customers, according to AGC.
“Construction firms are being hit by a double whammy of tariff- and war-induced materials cost increases as higher metals and fuel costs permeate an ever-wider range of prices,” Ken Simonson, AGC chief economist, said in the report. “Making matters worse, lead times for key steel components have lengthened, making it harder for contractors to keep projects on schedule.”
To handle costs and soft demand, AGC officials urged Congress to address trade disputes, and to pass a new multi-year surface transportation bill. The funds are critical for the construction industry, particularly since infrastructure work serves as one of the few reliable sources of construction outside of the data center boom.
“Having a new transportation bill is necessary before states plan for and launch major projects that boost demand for construction and create opportunities for economic growth,” AGC CEO Jeffrey Shoaf said in the report. “Resolving trade disputes will ease the price uncertainty that slows private construction.”
